14-34. Comparing Business Units Using ROI

Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows:

East West

Sales Revenue $1,000 $5,000

Income 200 390

Investment (beginning of year) 2,000 3,000

Current Liabilities (beginning of year) 200 200

R&D expenditures (note a) 500 400

R&D assumed to benefit two periods. All R&D is spent at the beginning of the year.

Required

Evaluate the performance of the two divisions assuming BMI uses return on investment (ROI).

14-35. Comparing Business Units Using Residual Income

Refer to the data in Exercise 14-34.

Required

Evaluate the performance of the two divisions assuming BMI uses residual income.

14-36. Comparing Business Units Using Economic Value Added (EVA)

Refer to the data in Exercise 14-34.

Required

Evaluate the performance of the two divisions assuming BMI uses economic value added.